Customer Lifetime Value Calculator

Formula

To calculate the Customer Lifetime Value (CLTV):

\[ CLTV = CV \times ALS \]

Where:

$CLTV$ is the Customer Lifetime Value
$CV$ is the Customer Value per Year or Time Period
$ALS$ is the Average Life Span in Years or Time-Frequency

Customer Lifetime Value Definition

A customer lifetime value is the total value or expected amount of revenue that is generated by a customer over their lifetime.

Why is Customer Lifetime Value Important?

Understanding a customer’s lifetime value is important in several different ways. First, a customer’s lifetime value is used as the basis for understanding how profitable a company can be long-term. Suppose you can estimate the average number of customers and the value of those customers over their life. In that case, you can estimate the total revenue that your company can expect to earn. From this information, a company can then set up its marketing structure to account for the lifetime value of acquiring a new customer. For example, if it costs $10.00 on average to acquire a customer, but the lifetime value of the customer is $50.00, then the cost of acquiring the customer is worth the cost.

Example Calculation 1

Let's assume the following values:

Customer Value per Year ($CV$) = $100
Average Life Span ($ALS$) = 5 years

Using the formula:

\[ CLTV = 100 \times 5 = 500 \]

The Customer Lifetime Value is $500.

Example Calculation 2

Let's assume the following values:

Customer Value per Year ($CV$) = $200
Average Life Span ($ALS$) = 3 years

Using the formula:

\[ CLTV = 200 \times 3 = 600 \]

The Customer Lifetime Value is $600.